The Growing Need of Local Mobile Manufacturing in Pakistan

Mobile phone is now an integral part of our lives as it is the fastest source of communication in today’s world. More than half of the population around the world is connected in 2016 through this small gadget; indicating a heavy usage of mobile phone. This excessive usage has enabled mobile phone manufacturing companies to generate heavy incomes from this industry. The rise in cell phone penetration on monthly basis is another indicator of how rigorously this industry is growing and becoming fundamental contributor to the national exchequer.

In Pakistan with a population growth getting close to 200 million and mobile phone penetration reaching 75%, there do exist potential for local manufacturing of mobile phones given the right business environment. The inception of 3G and 4G has also accelerated equally the use and subsequently the demand of smartphones in both rural and urban areas of Pakistan. According to Pakistan Bureau of Statistics (PBS), mobile phone imports in the country reached USD 433 million in the present first half i.e. July 15-January 16, of the  financial year recording 10.39% increase as compared to same period last year (USD 392.493 million).

The graph clearly shows that the influx of smartphones in Pakistan during 2015 has increased and reached a very significant level. The majority market share i.e. 52% of smart phones indicates that Pakistan now imports high number of smartphones than feature phone and tablets put together. The growth in number and the overall value of the mobile phone import also points towards the fact that our country does have potential for local manufacturing of such mobile phones.

The Growing Need of Local Mobile Manufacturing in Pakistan

The potential for domestic manufacturing can also be judged from the presence of Mobile brands imported in Pakistan during 2015:

During the year of 2015, “QMobile” remained the market leader although being a local brand with 58% share in the market. This phenomenon is quite unique as Pakistan is one of the few countries where local brand is the market leader. In addition to QMobile, there are many other local brands like Gfive, RIVO, and Voice etc. that did quite well in 2015 but has lately fallen out from the race. The rest of market is occupied by international mobile brands like Samsung, Apple, Huawei, Haier, Lenovo, Alcatel, HTC, OPPO etc. The above mentioned chart indicates the number of all mobile phone brands launched in Pakistan during 2015.

The opportunity presented by 3G/4G auction and the resulted rising demand of smartphones invited almost all international brands to focus on Pakistani market. Most of these companies did well and have earned profits in millions of dollars from Pakistani market.  While, Pakistan continue to be a very favorite destination for local and internal brands but nor the international brands neither Pakistani companies have been able to set up an assembly or manufacturing plant in Pakistan. They all use facilities either located in China or elsewhere for this purpose with only their sale points in Pakistan.

At the start of 2016, 3.6 billion i.e. more than double of world population is connected through mobile phones all over the world; which indicates a heavy usage of mobile phone.

However, in 2015, the need for local manufacturing was finally realized and the Government announced to help or facilitate such companies that show interest in local assembly or manufacturing. While, the Government previously announced to provide a comprehensive incentive package for local manufacturing but this did not materialize and seemed to remain more of a promise. The lack of interest can also be judged by the fact that no practical incentives have been provided in the recently announced Telecom Policy 2015. However, the only practical incentive that came as a breather for interested parties is an Allowance and a 5 years relaxation of tax holiday as an incentive for manufacturing.

The majority market share i.e. 52% of smart phones indicates that Pakistan now imports high number of smartphones than feature phone and tablets put together.

The Allowance appeared in FBR’s Income Tax Ordinance, 2001 (Amended up to 30th June, 2015) document Section 23A. The document illustrates that extra incentives will be given for factories that are established in specified underdeveloped and rural areas and FBR will give the company first year allowance in lieu of initial specified allowance.

The amount of allowance is specified according to the cost of assets which will be evaluated according to the FBR provisions.

The Clause 126N of Finance Act of 2015 (The Gazette of Pakistan, Extra June 29, 2015) further explains that profits and gains derived from by a taxpayer from an industrial undertaking, which must be certified by PTA and fulfils the mentioned criteria in the figure  attached of official Act, will avail this incentive.

With poor response from the industry on these Government efforts they are now contemplating to enhance the incentives by announcing other steps such as flouting government owned entities such an Expression of Interest (EoI) for local manufacturing of mobile phones and smart meters under the revival and revitalization plans for Telephone Industry of Pakistan (TIP) which will also restore the factory built by Siemens of Germany. TIP was the first of its kind that started making telephone apparatus and later on full-fledged telephone exchanges and telecom equipment at Haripur in KPK Province in 1950s. It is called “Mother of All Telecom products.”

As is case the Government has to offer more in order to encourage domestic efforts of mobile manufacturing.  In order to entice brands specially the existing ones, there is dire need to provide business-friendly environment and incentivize not only the manufacturing but as step one brands also that are interested in the assembly of smart-phones in Pakistan. Based on the incentives the business case could be justified to graduate assembly into manufacturing.

There is dire need to introduce business-friendly plans that can attract both local and international parties to invest in Pakistan as soon as possible.

Prospects of Local Mobile Phone Manufacturing:            Some significant prospects for domestic Mobile Phone manufacturing includes:

Large market for affordable mobile phones.Escape from import duties that were recently almost doubled by the Government of Pakistan (The GST on mobile handsets was increased from levels of Rs150 (low-end handsets), Rs250 (mid-range handsets) and Rs500 (high-end handsets) to Rs300, Rs500 and Rs1, 000 respectively).

• Saving of foreign exchange, lesser reliance on foreign countries to fulfill local needs.
• Increase in Foreign Direct Investment.
• Local manufacturing will decrease the grey channel import of mobile phones as lots of smuggled devices are entering in the country and damaging the national economy.
• Respectability of products “Made in Pakistan” due to government support hence improving national image.
• Revival of industry and association of quality with local products.

Establishment of domestic manufacturing will also create job opportunities for talented but unemployed Pakistanis; which will encourage R&D culture in Pakistan as well. Local manufacturing will also ensure overall economic development which will further provide base to the local assembly and manufacturing as other brands will also be motivated to play their roles in domestic manufacturing. The shifting dynamics of the Pakistan mobile market due to the deployment of 3G/4G networks across the country has made the case of Pakistani market more interesting. Hence, the prospects of local assembling and manufacturing could be very bright in Pakistan.

The Government must announce incentives so that local assemblies are leveraged as the greater accelerator of economic growth by devising aggressive long term goals to further increase mobile phone penetration and improve Pakistan’s standing among the connected countries in the world from least connected to most connected country.

Countries across the world have seen great transformative impact of their economic indicators due to local manufacturing. Examples include China, Argentina, Vietnam, Portugal, etc. Pakistan has the potential to achieve same wonders only if it manages to wisely plan the strategies for this initiative. Once deployed, mobile phone plants can do wonders to economy, as they bring in other industries along with them such as, component manufacturers, circuit designers, accessories, packaging, and software industry to cater mobile software requirements, R&D, countless jobs and so on. The Government must set milestones and announce incentives so that local assemblies can be leveraged as the greater accelerator of economic growth by devising aggressive long term goals to further increase mobile phone penetration and improve Pakistan’s standing among the connected countries in the world and transform it from least connected to most connected country.